8 months ago
Technological growth has picked up massive speed in the last couple of years. With the “mission digitization” motto, every industry sector like automobiles, home appliances, defense, are adopting the advanced systems rapidly. The present era is the era of innovation, and in this transition to industry 4.0, electronic chips are playing a vital role. For instance, electronic components are capturing the major chunk, which is almost 40% cost of the total Internal Combustion engine cars. Certainly, as Semiconductor chips are the brain and heart of any electronic system, attract the highest cost among the electronic components.
With the introduction of ultra-modern systems such as Artificial Intelligence (AI), Internet of Things (IoT), Virtual Reality (VR), Augmented Reality (AR), Machine learning (ML), and more are ready to change the shape of the future. Indeed, walking on the same lane, the usage of semiconductor chips will also see exponential growth.
India is a rapidly developing country. But in many segments, we are still dependent on other countries entirely. The semiconductor chip is such a commodity that we need to import from countries like Taiwan, South Korea, the U.S., Japan due to the concentration on the manufacturing and supply from these nations. But after the global shortage of semiconductors, India has now initiated a “Semiconductor- Make in India” mission to boost in-house chip development and manufacturing.
What is a semiconductor?
Before we deep dive into the reasons behind the global shortages of semiconductor chips and how we can turn it into an opportunity, let’s get a basic idea on semiconductors.
Semiconductors can be defined as such materials which have conductivity between insulator and conductor. In other words, these materials are a better conductor of electricity than insulators such as glass but are not as good as a pure conductor like copper. Semiconductors usually have pure elements, typically silicon or germanium, or compounds such as gallium arsenide, but the level of conductivity can be altered by introducing impurities. This process is known as doping.
Where are semiconductor chips used?
Semiconductor chips are the basic building blocks of any electronic item and work like the brain. In the current industry scenario, we can surely tell that there is a chip in every electronic item we see. Starting from the electronic watch we use to the ultra-modern defense missile; the semiconductor chip is the lifeline. There is a minimum of one semiconductor chip in our cars, smartphones, laptops, washing machines, televisions, and everywhere you can possibly check.
Why semiconductors are so important?
Remember those early days when mobile phones were big in size, heavy, costly (with almost no features), and had battery backup for only 30 minutes.
Computers were like huge boxes, with very little memory and speed. But now it can fit into our pocket.
These are the reasons why semiconductor chips are so much important for the technological advancement.
Semiconductor chips are
· Smaller in size
· Super-fast and responsive
· Save huge space
· Consume very less power
· Shockproof and compact
· Heat and vibration-free
Due to the immense advantages, almost all industry segments are using semiconductor chips massively. Some of such industries are
· Household appliances
Why there is a global shortage of semiconductors?
The simple equation behind any shortage is the scarcity of supply against the demand. Either there can be a bottleneck in the supply side that causes the gap or the sudden rise in the demand is the culprit. In the case of semiconductor chip shortage, there are several issues that played a significant role.
The semiconductor shortage situation was not always there. During 2018 and 2019, the demand for this commodity was in a declining trend whereas the supply was good. But in 2020, the sale increases by 6.5%, and as the covid pandemic hit the market, demand shoots like anything.
Some of the major causes behind this shortage are
1. Due to the increasing demand for Artificial Intelligence (AI), the Internet of Things (IoT), which needs integrated circuits (ICs) triggered the requirement of semiconductors even before the Covid-19 pandemic.
2. The sudden attack of the coronavirus forced us to stop the movement of the world. Due to the lockdown which was imposed to restrict the spread of the virus, all the industries, including the semiconductor manufacturing facilities, were closed for several months. At the later stage, this huge gap in the supply caused the shortage.
3. The Covid-19 pandemic-driven push also brought new opportunities to some industries like the internet-connected devices, mobiles, computers and laptops, tablets, and other electronic gadgets. The supply side was not ready to match up with the increasing demand.
4. As the automobile sector was totally in the declining mode after the global health crisis and this caused the change in the focus of the semiconductor manufacturers from the automobile industry to telecommunication, internet, industries.
5. As people were compelled to stay in their homes, the video conferencing tools have observed a sudden hike and attracted the semiconductor requirement.
Why INDIA can be the next semiconductor hub?
Even some years ago, industry leaders were in a different thought that India need not think much about setting a mission to ramp up the semiconductor production. The supply and demand scenario were balanced and the cost to set up the infrastructure is also huge.
But the dramatic change in the last one and a half years has forced the government and other leading industries to think about making India the next big hub of semiconductor chip manufacturing facilities. To give a boost to the advanced technologies, and to manage the short supply of Integrated circuits, this is not a great opportunity for India to become a leader in this segment. We have analyzed some of the major reasons that can make India the next semiconductor chip manufacturing hub.
· Currently, India is importing all the semiconductor chips and the increasing demand will take the market to $100 billion by 2024, which is currently $24 billion. The rising requirement has become a concern for not only India but all over the world to depend only on some specific nations.
· Recently, the Union Cabinet has announced an allocation of INR 76,000 crore to support the “semiconductors and display manufacturing ecosystem”. This is a welcome move from the government to promote the industries.
· By launching incentive schemes like “Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS)” the government is planning to allocate INR 3,285 crores with a horizon of eight years for chip and electronic components manufacturing.
· The incentives announced by the Indian government are better than the of other countries. As per the President, VLSI Society of India, this is far better than the other nations and the alignment with the TWO major countries, South Korea and Japan, will help to speed up the set-up process.
· With the Production Linked Incentive Scheme (PLI), the forecast is to grow from 3.5% to 10% in the next 4-5 years.
· Most of the major semiconductor chip manufacturing companies like Samsung, Intel, Qualcomm have their research and development centers in India. With the increasing demand for AI, IoT, 5G, the chip demand will increase. According to the VP of the network group of Intel, AI is going to articulate the human brain but, it is not even 1% of the requirement not. Hence, there is a long way to go.
Though India has marked a lot of progress in the chip design and electronic component manufacturing segment, but when we are talking about being the next semiconductor chip manufacturing hub globally, a lot of things need to be done.
High Investment: This sector is very technology-sensitive and complex. Moreover, the rapid changes in technologies need continuous innovation. The semiconductor industry needs to adopt the latest technologies every 3-4 years. This means organizations need to be ready to embrace new innovative technologies and discard the old ones frequently. All these involve huge capital investment. Also, the risks involved, a longer period for the return of investment, are some areas of consideration.
Minimum fiscal support from the Government: Government has announced several incentives to support the growth of the chip industry. But when we talk about the scale of investments to turn India to be the next big player, these incentives are meniscus.
Lack of fab facilities: Currently there is no semiconductor fabrication set-up in India. Only ISRO and DRDO have their own set-up of fab foundries to manufacture chips but those are for their internal use. There is significant talent available in India for the chip design, but unless there is a greater facility, the expected movement cannot be achieved. The good news is that recently it is announced that India is going to set up a world-class semiconductor manufacturing facility and the global champion organizations are showing huge interest in setting up manufacturing facilities in our country.
Infrastructure and resources: The prime requirement to set up a manufacturing facility, we need a state-of-the-art infrastructure and required resources to facilitate the speed. There is a great requirement to collaborate with the industry and academia so that the future human resource can be managed in-house. Apart from this, the uninterrupted supply of water and electricity is a must. Besides, silicon is one of the base materials to make semiconductor chips and the government should think about how to make the supply in ample amount.
To sum up, India has now realized that to make “Atmanirbhar Bharat” we cannot depend only on a couple of sources, especially imports. And when every technology need semiconductor chips, we must think to set up the smart facilities in-house. With the decision of making a mega semiconductor fab facility, India has already initiated the mission of creating chips in India. Encouraging policies, emerging entrepreneurs in this segment, increasing demand in the electronic components, and the availability of talents gives a positive signal that the future of India in the segment of semiconductor chip manufacturing is bright.
Supply Chain Expert at INDIA
8 months ago